Canada and Mexico to be exempt from U.S. tariffs on steel and aluminum

03/08/2018

Canada and Mexico will be exempt from tariffs on steel and aluminum imported into the United States, but there’s no guarantee that will be the case forever.

A little after 3:30 p.m. ET on Thursday, U.S. President Donald Trump signed off on two proclamations taking aim at the imports of two metals where the U.S. economy uses far more than it produces.

“The actions we’re taking today are not a matter of choice,” Trump said. “They’re a matter of necessity for our national security.”

One order imposes a 25 per cent tariff on imported steel, while another slaps a 10 per cent levy on aluminum.

“They drove our plants out of business,” Trump said, speaking of foreign metal companies that sell their products in the U.S.

Scrap aluminum to be reprocessed into aluminum slabs is shown at a factory in Brampton, Ont. Canada supplies almost half of all the aluminum that the U.S. consumes each year. (Norm Betts/Bloomberg)

Trump first floated the proposal last week, which set off howls of opposition that the moves would kick off a trade war full of reciprocal shots from America’s trading partners. The most notable is Canada, which supplies more than a sixth of all the steel that the U.S. uses and more than 40 per cent of its aluminum.

But the tariffs, which are being enacted under section 232 of the little used Trade Expansion Act of 1962, will exempt both metals coming from Canada and Mexico on national security grounds — at least initially.

The so-called “carve out” of Canadian steel and aluminum will allow U.S. trade negotiators to have what a senior administration official described as “ongoing discussions” about various issues involving the three countries.

That’s a thinly veiled reference to NAFTA negotiations, which are currently in their eighth round of talks as the three countries seek to update the more than two-decade old agreement that governs trade between them.

At the signing ceremony, the president was even more blunt: “We’re going to hold off the tariff on those two countries to see whether we can make the deal on NAFTA.”

That sets up the potential that should the U.S. not get the concessions it wants from those talks, Canadian metal producers could soon find themselves subject to the same punitive tariff as everyone else.

Canada exported a combined $15 billion of the two metals to the U.S. last year, so a tariff would bite deep and likely prompt some sort of retaliatory tariff on U.S. goods imported into Canada.

“Our industries have been targeted for years and years by unfair foreign trading practices,” Trump said at the signing ceremony, “And that’s going to stop.”

Trade lawyer Mark Warner, principal at MAAW Law in Toronto, called it “a minor victory” that Canada was exempted from the tariff plan.

“This is on balance a good thing today,” he said in an interview with CBC News. “We didn’t get caught up in the application of this thing,” but it will likely loom large in the background of NAFTA discussions.

Warner questioned whether the tariffs will have the effect Trump is seeking for the U.S. steel industry.

“We’ll see how far this really goes,” he said. “When you take Canada and Mexico out of the equation, you’re taking an awful lot of American steel imports out …. Realistically, is that enough left over there to really ramp up American production in a significant way? Probably not.”

Tariffs start March 23

Once the orders are signed, the new tariffs will be in effect in 15 days on Friday, March 23. Under U.S. law, tariffs enacted under section 232 are by definition temporary — only Congress has the power to issue permanent tariffs.

But the White House on Thursday gave no indication as to just how long they may be in effect.

The president did say, however, that the administration is open to granting other countries a similar exemption on national security grounds, just as it has done for Canada for now.

Critics of the proposal have said that there will be a heavy price to be paid both in terms of jobs from steel-dependent industries in the U.S. and consumer prices.

But the administration official dismissed both of those concerns, noting that the impact of the aluminum tariff would add between 1.5 and two cents to the price of a six-pack of canned beer. The official gave the example of a Boeing 777 jet, with a sticker price of $330 million US per plane.

New tariff rules would add about $25,000 to the price of that plane — or less than one one thousandth of one per cent.

Speaking earlier Thursday, U.S. House of Representatives Speaker Paul Ryan said the U.S. should begin “surgical” actions against the dumping of Chinese steel and aluminum instead of Trump’s tariff plan.

Speaking to employees of Home Depot in Atlanta, Ryan said: “I’m just not a fan of broad-based, across-the-board tariffs, because I think you’ll have a lot of unintended consequences. You’ll have a lot of collateral damage.”